Q1 2024 Nevro Corp Earnings Call

May 7, 2024

Please wait.

Adrienne: Good afternoon, My name is Adrienne and I'll be your conference operator today.

Adrienne: At this time I would like to welcome everyone to the narrow Corp, first quarter 2024 earnings conference call and webcast.

Adrienne: Today's conference is being recorded.

Adrienne: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad.

Adrienne: If you would like to withdraw your question Press Star one again.

Adrienne: At this time I would like to turn the conference over to Angie Mccabe, Vice President Investor Relations and corporate Communications. Please go ahead.

Angie Mccabe: Thank you Andre and good afternoon, and welcome to <unk> first quarter 2024 earnings Conference call with me today are Kevin Thornell, our CEO and President and Rob Mcleod, Our Chief Financial Officer before we get started please note that our earnings release and the supplemental presentation accompanying this call are available on the events and presentation.

Page of the investors section of our website at <unk> Dot com.

Angie Mccabe: Also this call is being broadcast live over the Internet to all interested parties and an archived copy of this webcast will be available in the investors section of our corporate website. Shortly after the conclusion of this call.

Angie Mccabe: I'd like to remind everyone that comments made on today's call may include forward looking statements within the meaning of federal Securities laws.

Angie Mccabe: Results could differ materially from those expressed or implied as a result of certain risks and uncertainties. Please refer to <unk> SEC filings, including our annual report on Form 10-K for a detailed presentation of risks.

Forward looking statements in this call in this call speak only as of today and the company undertakes no obligation to update or revise any of these statements. In addition management will refer to adjusted EBITDA, a non-GAAP measure used to help investors understand <unk> ongoing business performance.

Adjusted EBITDA excludes interest taxes noncash items, such as stock based compensation depreciation and amortization litigation related expenses and credit changes in the fair market value of warrants and other adjustments such as gain from extinguishment of debt and restructuring charges.

Angie Mccabe: Please refer to the financial tables in our earnings press release issued today for a reconciliation of GAAP to non-GAAP financial measures I will now turn the call over to Kevin Kevin.

Kevin Thornell: Thanks, Angie and good afternoon, everyone and welcome to our first quarter 2024 earnings call.

Kevin: A short time ago, we reported our first quarter results with revenue and adjusted EBITDA exceeding the guidance, we provided on our fourth quarter 2023 earnings call in February.

Kevin Thornell: Also announced we are taking additional restructuring steps to further advance our strategy and accelerate our path to profitability or reaffirming our full year 2020 for revenue guidance.

Kevin Thornell: <unk>, our 2024, adjusted EBITDA guidance to a range of negative $5 million to positive $2 million and providing our second quarter 2024 guidance. In addition, I am thrilled to announce that Chris Chris toe for <unk> has been promoted to chief operating officer on today's call I'll discuss the progress.

Kevin: We are making in advancing our three pillar strategy, including highlights from the first quarter and the additional restructuring actions Rod will then discuss our first quarter financial results and provide more detail on our guidance for the second quarter and full year of 2024.

Kevin: In the first quarter, we continued to advance our three pillar strategy of commercial execution market penetration and profit progress and this is reflected in our overall results for the first quarter of this year and as compared to the year ago period worldwide revenue was $101 9 million an increase of five 8%.

Kevin: On a reported basis and five 6% on a constant currency basis. This year over year growth was largely driven by a product mix shift to our newest generation SCS platform <unk> IQ as well as an increased number of long term never patients who are now suitable candidates for a replacement device.

Kevin: As a reminder, our devices have rechargeable batteries with a very long functional life than even in this case. We believe these devices will eventually require replacement.

Kevin: Our earliest patients are now out about 10 years or more we believe many of our patients will want to continue accessing our unique and successful high frequency therapy through a new newer narrow device.

Kevin: While this is currently a small part of our business. We believe it may play a slightly larger role in our implant volumes over time.

Adrienne: U S trials were down approximately five 1% compared with the year ago period. This was largely in line with our expectations and mainly driven by two factors first softness in overall U S. SCS trialing activity in the quarter and second the impact of interest among ex SCS customers and attending our.

Adrienne: Si joint fusion training sessions, which take physicians out of the practice for a day or two and.

Adrienne: In fact, we added more training sessions in the quarter to accommodate physician demand to learn this procedure.

Adrienne: We are conducting additional Si joint training sessions throughout the second quarter and the remainder of the year.

Adrienne: From a cadence perspective, and Raj will discuss our guidance in a few minutes revenue in the first half of this year is on track with our expectations. This combined with several factors such as one our continued focus on growing our SCS business by selling our superior therapy to competitive positions to grow in the market.

Adrienne: Our expanded indications indications such as PD in which continued to show solid growth in the quarter three beginning to realize early result, as our Si joint business gains traction in the second half of this year and four leveraging our Si joint business to sell more SCS devices into competitive accounts.

Adrienne: Gives us confidence that we can achieve our full year revenue guidance of $4 $35 million to $445 million.

Adrienne: We also reported a net loss from operations of approximately $35 8 million and adjusted EBITDA of negative $9 6 million.

Adrienne: As it relates to the first pillar of our strategy commercial execution in the first quarter sales reps, who joined <unk> in the second half of last year continue to ramp up on the business and we commenced a limited market release of our Si joint products. We also continued to focus on educating our customers on the benefits of our superior SCS therapy.

Adrienne: We are driving the increased adoption of Hff's IQ, our newest generation SCS system that brings a multitude of benefits to the patient and physician.

Adrienne: Hff's IQ represented 58% of our total permanent implants in the first quarter, a 5% increase from the fourth quarter of 2023 to.

Adrienne: To broaden access to this therapy for more patient in mid April we launched our solution for nearly half of the patients who do not have a compatible iPhone, including those with an alternative smartphone device.

Adrienne: As we've previously communicated our real world data shows that our <unk> IQ system in combination with the cell phone app helps patients get back to pain relief faster than those who use a traditional remote by allowing the patients to have more input on and control over their therapy.

Adrienne: We expect continued H FX IQ adoption as we educate the market on the benefits of this therapy.

Adrienne: We also continue to advance our second strategic pillar of market penetration, where we focus where our focus is on expanding into new indications developing and launching enhancements to our <unk> IQ system executing on a robust R&D pipeline and as appropriate targeting additive acquisitions to drive profit.

Adrienne: <unk> growth.

Adrienne: In the first quarter, we focused on integrating our newly acquired Si joint fusion business and as I. Just mentioned commenced a limited market release of our Si joint products and prepared for the broader release of our Si joint products to the market throughout the remainder of this year.

Adrienne: By expanding our product portfolio to include solutions for Si joint pain, we are now engaging with physicians, who have not previously utilized our products to now offer treatment options for patients with different chronic pain conditions.

Adrienne: Notably, we believe that 15% to 30% of low back pain is caused by Si joint dysfunction.

Adrienne: In the U S. Approximately $1 9 million patients receive an Si joint diagnosis annually, representing a 2 billion market opportunity.

Adrienne: Through this expansion and therapeutic options for pain patients. We are now able to address more patient needs and leverage our Si joint solutions into business at competitive SCS accounts, where we previously did not have access.

Adrienne: During the quarter, we conducted several Si joint fusion training sessions for physicians and our sales reps with a primary focus on narrow one a standalone device with integrated Transfixing technology that has proven to immediately transfixed ASI joined to allow the opportunity for long term fusion year to date more than 200.

Adrienne: 20 physicians participated in our Si joint training sessions. Many of them are current customers, who took the time to learn a new Si joint fusion procedure. So they can utilize our innovative products to treat their patients suffering from chronic pain.

Adrienne: Early feedback from physicians, who attended our training sessions has been very positive and they believe <unk> is an excellent treatment option for patients suffering from Si joint pain, we continue to see significant physician interest and demand for training on our Si joint products, particularly narrow one.

Adrienne: As we rollout our Si joint products across the market. Many of the visit physicians that we trained are identifying patients in their practice, who suffer from mechanical back pain that could benefit from an Si joint fusion procedure.

Adrienne: Importantly, we continue to train our sales force and are leveraging our commercial team to drive adoption and growth.

Adrienne: So as adoption of our Si joint products increases, we will gain greater access to physicians, who might be interested in using our SCS products to treat their patients as many physicians who perform Si joint fusion procedures also implant SCS devices.

Adrienne: We are also thrilled that in February the food and drug administration granted five 10-K clearance for <unk> without the need to include to include the net ROE fixed group. This marks the first regulatory clearance since we acquired <unk> late last year <unk> as a standalone device represents a significant advancement in Cy <unk>.

Adrienne: <unk> fusion and we believe it is the most efficient effective and safe safest Si joint fusion implant currently available on the market.

Adrienne: As a health care health care company with a vision to free patients from the burden of chronic pain, we remain focused on increasing awareness of FCS as a treatment therapy for painful diabetic neuropathy or PD in and other indications and just under 1%. The PD end market remains significantly underpenetrated.

Adrienne: And we are working to develop this market with our innovative technology and superior clinical data.

Adrienne: Diabetes is a major global public health concern and continues to grow and prevalence. It can lead to a variety of complications, including nerve damage reduced circulation diabetic ulcers and limb loss.

Adrienne: In the first quarter 24 month data from our cylinder TVN RCT demonstrate improvement in sensory function. They can lower the risk of diabetes related ulcerations in traumatic amputation for patients suffering from severe side effects and diabetes was published in the journal of diabetes Science and technology.

Adrienne: We continue to be a leader in developing superior clinical data showing the efficacy of our best in class 10, Kilohertz technology as we've discussed on prior earnings calls our PD and clinical sensory study is designed to more objectively proved the sensory improvements that we observed in our initial randomized controlled trial or RCT.

Adrienne: And to obtain an SCS indication beyond just pain, where.

Adrienne: We're pleased to share that enrollment in this study now stands at 143 patients ahead of our plan.

Adrienne: As a result of this robust enrollment in the strong outcomes demonstrated in our cinder RCT, we are pausing enrollment in the PD and sensory study to allow for an interim primary endpoint analysis of all subjects, who are randomized from this existing cohort while the results of the analysis may indicate restarting enrollment in the future are.

Adrienne: Goal is to bring trial results to publication as soon as possible for the benefit of patients and review for inclusion in therapeutic guidelines.

Adrienne: The third pillar of our strategy is profit progress we remain focused on executing key initiatives to become more efficient scaling our costa Rica manufacturing facility and maintaining disciplined expense management to expand margin.

Adrienne: <unk> profitable growth, we made good progress on this front in the first quarter as demonstrated by adjusted EBITDA coming in ahead of our expectations.

Adrienne: We are taking additional restructuring steps to make <unk>, a stronger healthier and Nimbler company. So that we can advance our three pillar strategy and accelerate our path to profitability. We are laser focused on managing our expenses and aligning our cost structure with our business and have identified areas in key initiatives that we believe.

Adrienne: We will drive growth and profitability, we continue to invest in our R&D pipeline to develop and commercialize innovative treatment therapies for patients suffering from chronic pain.

Adrienne: Raj will discuss our full year guidance in more detail, but as a result of our first quarter performance additional restructuring steps and outlook for the remainder of this year, we are raising our adjusted EBITDA guidance to a range of negative $5 million to positive $2 million.

Adrienne: As part of these steps I am thrilled to announce that Chris Chris Topher ROE has been promoted to the newly created role of Chief Operating Officer. In addition to his current responsibilities, leading our manufacturing processes in research development and innovation efforts as well as spearheading the integration of <unk> into our operations Chris will now.

Adrienne: Have oversight of clinical and regulatory affairs and quality assurance Chris.

Adrienne: Chris has been with <unk> for eight years and during this time he has proven to be a valuable member of our team his strong leadership skills technological experience and deep knowledge of the med tech industry make him the right choice to serve in this role we continue to transition more of our manufacturing to our Costa Rica facility and as we sell down inventory that is.

Adrienne: Produced by our second source supplier and manufacture more in Costa Rica, we expect to see increased margin expansion over time, we will also leverage our Costa Rica facility, which is supported by best in class manufacturing experts and technology as we grow our business through new products, we developed as well as tuck in acquisitions.

Adrienne: In summary over the past year since I joined <unk> as CEO, we have made significant progress in advancing our three pillar strategy to further position our company for the opportunities ahead of US. We are excited about our future as we have multiple growth drivers in the SCS market, including through expanded indications as well as the Si joint fusion market.

Adrienne: We entered the fast growing Si joint fusion market through our acquisition of versa and are focused on ramping up that business. We will continue to differentiate ourselves through our unique 10 kilohertz technology that produces superior outcomes and we will continue to capitalize on meaningful leverage opportunities to drive long term profitability.

Adrienne: Generally positive cash flow and deliver shareholder value I will now turn the call over to Rod for a discussion of our first quarter financial results results in 2020 for second quarter and full year guidance.

Rod: Thanks, Kevin and good afternoon, everyone Telco Kevin's remarks, we are pleased with our first quarter 2020 for performance as we made further progress on advancing our three pillar strategy.

Rod: For the first quarter of 2024 as compared with the year ago period worldwide revenue grew to $101 9 million an increase of five 8% as reported.

Rod: And five 6% on a constant currency basis, and was primarily driven by a high mix shift up by a mix shift to higher priced products as well as the growing number of patients who are now suitable candidates for replacement devices. Kevin discussed earlier also there were 64 selling days in both the first quarter of this year and <unk>.

Adrienne: Last year you.

Adrienne: U S revenue grew five 7% to $87 million International revenue was $14 9 million, increasing six 1% as reported or four 7% on a constant currency basis.

Adrienne: Gross profit increased 10, 7% to $71 $5 million and gross margin increased 310 basis points to 72% driven primarily by a shift to higher margin products that are manufactured in our Costa Rica facility.

Adrienne: Operating expenses increased to $107 4 million compared with $100 9 million in the prior year period and included the impact of the following items first.

Adrienne: $5 $5 million charge related to our January 2020 for restructuring and second.

Adrienne: Two versa acquisition related items items comprised of a $3 $5 million charge related to the change in fair value of the contingent consideration liability as well as 700000 of intangibles amortization.

Adrienne: Excluding these items operating expenses decreased approximately three 3% versus the prior year quarter, reflecting our ongoing focus on disciplined expense management and driving operational efficiencies throughout the organization.

Adrienne: Litigation related legal expenses were $2 8 million compared with $3 8 million in the first quarter of 2023.

Adrienne: We are pleased with the recent ruling in our favor in our arbitration against the Mayo clinic and Flathead partners. We now consider the matter concluded with no finding of lag liability against narrow.

Adrienne: Cash cash equivalents and short term investments were $281 5 million at March 31, 2024, a decrease of $41 2 million from December 31 of 2023. This decrease was primarily due to customarily higher cash outflows that occur.

Adrienne: In the first quarter.

Adrienne: <unk> $9 $8 million versus related milestone payment made in the quarter related to the FDA 500, 10-K clearance that Kevin discussed earlier and that was achieved sooner than we anticipated and $4 4 million in restructuring related payments.

Adrienne: As Kevin discussed in his remarks in the first quarter, we focused on training physicians and the salespeople, who support them and performing Si joint procedures, using our portfolio of Si joint fusion products.

Adrienne: We are in the early phase of ramping up this business and we'll continue to train physicians and our field force throughout 2024 as a result, we anticipate that the second half of this year will begin to reflect increasing revenue traction in this business.

Adrienne: As we communicated previously while we continue to expect diverse a transaction to be accretive to both revenue and adjusted EBITDA. This year. We also expect the revenue contribution from our Si joint business to be immaterial to the overall year.

Adrienne: Turning now to our 2020 for full year and second quarter guidance.

Adrienne: First for the full year 2024, we continue to expect worldwide revenue of approximately 435 million to $445 million.

Adrienne: This reflects our outperformance in the first quarter, our expectations for the second quarter, which I will discuss in a moment and our outlook for the second half of 2024, we expect gross margin to be approximately flat with 2023 gross margin of 68% our Costa Rica manufacturing facility continues to produce excellent results.

Adrienne: With low labor and material costs for manufactured products.

Adrienne: We remain excited about the cost improvements Costa Rica can deliver and we continue to project long term gross margins in the mid seventies, assuming pricing holds at current levels.

Adrienne: We expect our full year 2020 for operating expenses to be approximately $390 million and largely flat compared with 2023.

Adrienne: Keep in mind that our 2020 for operating expenses also include restructuring related charges of $10 million versa.

Adrienne: <unk> related amortization of milestone revaluations totaling $6 5 million and key Si joint investments as we continue to scale this exciting new business exclude.

Adrienne: Excluding the above items, we expect our operating expenses to be down approximately 7% on a year over year basis.

Adrienne: In total we expect our January and May 2020 for restructuring efforts to generate savings of more than $25 million in 2024.

Adrienne: And full year annualized run rate savings of well over $30 million.

Adrienne: Importantly, and as we mentioned in our Q4 2023 earnings call through our restructure through our restructuring and other efforts to drive improved efficiencies and expense management. We are redirecting portions of our resources to key areas of our business such as adjacent.

Adrienne: <unk> next generation R&D projects investments in PDL, and Si joint related investments to deliver a world class Transfixing solution to patients.

Adrienne: We are laser focused on aligning our cost structure with our business and are taking additional restructuring steps to reduce our costs improving efficiencies and focus our resources on executing our strategic priorities given our outperformance in the first quarter and the actions. We are taking this year to accelerate our path to <unk>.

Adrienne: Stability, we are raising our adjusted EBITDA guidance for the full year to be in the range of negative $5 million to positive 2 million, which roughly reflects.

Adrienne: 9 million to $10 million improvement in adjusted EBITDA compared to the guidance we provided in February 2024.

Adrienne: For the second quarter of this year, we expect worldwide revenue to be in the range of approximately $106 million to a $108 million, which is in line with our expectations for the first half of this year.

Adrienne: As we've previously communicated the SCS business can be a bit lumpy. While we are pleased with our first quarter performance performance, which exceeded our expectations. We still believe that our first half will largely finish in line with our initial expectations of approximately 208 million to $210 million, which is.

Adrienne: One 4% to 4% for the first half of this year versus the prior year period.

Adrienne: We expect second quarter 2024, adjusted EBITDA to be in the range of negative $3 5 million to.

Adrienne: It's a negative $2 $5 million.

Adrienne: In closing we are pleased with our first quarter performance and are excited about our future. We know we have more work to do and we remain committed to executing our strategy operating with nine toward achieving profitability by capitalizing on the significant growth ahead of us and aligning our cost structure with where the business current.

Adrienne: Stance that deliver value to our customers the patients they serve our employees and our stockholders.

Adrienne: Andre will now open the call for questions.

Andre: Thank you we will now begin the question and answer session. If you have dialed in and I would like to ask a question. Please press star one on your telephone keypad you raise your hand and join the queue. If you would like to withdraw your question simply press Star. One again, we ask that you. Please limit yourself to one question and one follow up to allow everyone an opportunity to ask a question.

Adrienne: We will take our first question from Joanne Wuensch at Citi.

Adrienne: Good afternoon. This is actually Anthony on for Joanne. Thank you for taking our questions.

Anthony: I guess first on guidance, just given where the second quarter as it implies a pretty.

Anthony: Deep acceleration in sales.

Anthony: Back half of the year and then similarly for EBITDA can you just maybe talk about what gives you confidence.

Anthony: Both on the revenue and the EBITDA number maybe just.

Anthony: Talk about some of the cost cutting or pursuing thank you.

Speaker Change: Yes. Thanks for the question, yes, so we do have it ramping in the back half of the year as you recall. This business has a lot of seasonality with the fourth quarter always being substantially the biggest quarter of the year. So we predict that seasonality will continue. We also obviously you have our Si joint business that will provide a little bit of <unk>.

Speaker Change: <unk> to us as we get into the back half of the year and then also don't forget last year, we had a pretty pretty big change in our sales force and people were hired towards the back end of 2023. So there is still ramping up as the year goes on and a lot of those newer reps are starting to hit their stride out there in the field and we also as we indicated.

Speaker Change: It's still a small portion right now, but we have the.

Speaker Change: The people that have had a previous narrow device that are coming back to continue their therapy. After maybe 910 11 years of great success in the treatment, but want to continue that therapy. So we see that progressing as the year goes on as well.

Speaker Change: Thanks, and just a quick follow up on your second point on the replacement opportunity how much of that is baked into guidance for this year.

Speaker Change: Yes, everything trials and replacements and competitive conversions and new patients are always baked into the guidance. So it's all baked in right now we're not going to get into calling out it's a really small part of our business right now.

Speaker Change: No.

Speaker Change: We'll continue to include it as we give our guidance for the rest of the year.

Speaker Change: Got it it's helpful. Thank you.

Speaker Change: Yep.

Speaker Change: We will go next to Nathan trade back at Wells Fargo.

Nathan Treybeck: Hi, Thanks for taking the question.

Nathan Treybeck: Can you provide a little more color on your 24 guidance assumptions I mean you'd be.

Nathan Treybeck: Q1 by about $4 million, but you didn't raise the full year guide in Q1 was also yourself as comp of the year. I guess are you assuming Q2 through Q4 lower than your initial outlook.

Speaker Change: Yes, I mean, just mathematically we over delivered in Q1, and we're holding to the full year at the same level. So so yes youre correct.

Speaker Change: We feel like Q1 was.

Speaker Change: It was a touch stronger than what we were anticipating and were really as we look at the first half of the year, it's still really coming in line with how we initially thought the first half of the year would play out so.

Speaker Change: The first quarter being a little bit stronger second quarter is just a touch touch softer than than maybe what we would have projected when we put that Q1 guidance out.

Speaker Change: Okay.

Speaker Change: And can you provide a bit of color on the additional restructuring steps that you're taking and do you expect more disruption from this under the rest of the year.

Speaker Change: So.

Speaker Change: The short answer is no we don't expect much in the way of disruption a lot of this was.

Nathan Treybeck: Driving increased focus on the projects and the strategies that as an organization, where we're really going after.

Nathan Treybeck: And we are we were able to shed.

Nathan Treybeck: 20 about $25 million.

Nathan Treybeck: <unk>.

Nathan Treybeck: And reductions for this year alone and on an annualized basis, it's north of $30 million. So a lot of good work by the team to just drive focus on really the key aspects and strategies of this organization.

Speaker Change: Okay. Thanks.

Speaker Change: Our next question comes from Robbie Marcus with JP Morgan.

Speaker Change: Hi, This is actually Ryan on for Robbie Thanks for taking our question.

Ryan: I just had a couple of questions first on <unk> I know you mentioned that you expect to kind of tailwind from that as I joined business in the second half of the year can you elaborate a little bit more on how much of that is baked into the guidance I mean, I think some prior commentary pointing to roughly $20 million in sales.

Nathan Treybeck: How should we think about that just for the full year and also just quarter to quarter.

Speaker Change: Would be helpful.

Speaker Change: Yes. Thanks, Thanks for that yeah, we're excited about versa, but it is still a non material part of our business, we have never put out a number.

Speaker Change: $20 million number so I want to make sure people don't think that we gave out any of those numbers because we have it we still have to scale that business a lot of it is around the sort of internal scaling of making sure. We have the trains that are utilized for the procedure and ramping ramping those up so our sales reps can have them available.

Speaker Change: Two of them and available for the procedures and we also are making sure that we trained physicians and our sales reps the right way, we go through a pretty <unk>.

Nathan Treybeck: Exhaustive list of things that the reps have to show before they can start to cover some cases by themselves and so it's going to take us some time to continue to get all of our sales rep up to speed, but as I mentioned right now we've trained over 220 positions and the waiting list was much bigger than that so we'll continue to add on as I joined <unk>.

Nathan Treybeck: Training classes, but it does take time for physicians after they get trained to go back identified patients and start doing those procedures. So we're excited about it but it's nowhere near that size of the business as we move on through the year as we said it's been a it's going to be an immaterial part in 2024.

Speaker Change: Got it that's really helpful. And then the second one is just on gross margin quickly.

Speaker Change: You had a pretty solid gross margin in the quarter came in ahead of expectations.

Nathan Treybeck: And still kind of expecting it to be roughly flat.

Nathan Treybeck: For the full year with 2023. So can you just walk through why you expect the sequential decline.

Nathan Treybeck: Just given you had a strong quarter you mentioned that allows it was due to the Costa Rica manufacturing ramp, which obviously should continue throughout the year. So just talk to some of the puts and takes there that would be helpful. Yes.

Speaker Change: If you have.

Speaker Change: Happy to and it's a good question.

Speaker Change: If you happen to go back to our last quarter, we walked through this.

Speaker Change: A little bit as well on the call, but basically as we're in this is we're in this transition phase moving from contract manufacturers too.

Speaker Change: Sourced product out of our Costa Rica manufacturing plant.

Nathan Treybeck: There's going to be a couple of months, where some of the.

Nathan Treybeck: The variances associated with the overheads, well hidden a little bit of a meaningful way in the second half of this year.

Nathan Treybeck: And this really has to do with with <unk>.

Nathan Treybeck: Prior year when volumes and some of the mix shifted so we're going to take a little bit of a.

Nathan Treybeck: You can see some of those variances flowed through in Cogs in the second half of the year.

Nathan Treybeck: But our long term prognosis for the cost out of Costa Rica are still super strong the labor rates are good.

Nathan Treybeck: The material costs are good at.

Nathan Treybeck: And we're just going to have to work through a little bit of these choppy waters as were transitioning from the contract manufacturer to Costa Rica manufacturing.

Speaker Change: Great. Thank you.

Sugar: Next we will go to sugar and sang at RBC.

Speaker Change: Hey, this is <unk> on for Simeon.

Speaker Change: Could you discuss the health of the spinal cord stimulation market in some detail what's complicated what's contemplated in your 2024 guide and what can we expect <unk> to get back into share take position.

Speaker Change: Yes look at the we commented on the on the trials in the first quarter being largely in line with what we expected because of some softness in the Trialing. What we know right now from the public companies that have announced is theres really two of us that grew in the quarter one of our competitors announce being down.

Speaker Change: In the quarter, but we believe there is a couple of private players that are also up so three or four of us actually grew in the first quarter. So thats encouraging as far as whats baked into the guidance all of our Trialing replacements everything we talked about is baked into the guidance for the year, including ramping a little.

Speaker Change: Bit too our Si joint business in the back half of the year, our sales reps ramping up throughout the year that were hired at the end of last year as well as those replacement cycles still likely going to be strong for those patients that have had unbelievable success with our technology over the last 10 years and so you add those all together and they are all baked into the guidance and why we feel.

Sugar: Good about.

Sugar: Reconfirming guidance for the year.

Speaker Change: Great. Thanks.

Sugar: We'll move next to Bill <unk> at Canaccord Genuity <unk> Genuity.

Zachary: Hi, This is zachary on for Bill today, Thanks for taking the question.

Zachary: <unk>.

Zachary: Was there any impact on Q1 revenue from that I understand how you trained over 220 positions.

Speaker Change: That's all any volumes that impacted revenue.

Speaker Change: Yeah, as we've mentioned we've.

Speaker Change: <unk> picked up a little bit.

Speaker Change: Revenue from.

Speaker Change: Our <unk> business, but it's immaterial and they'll continue to be immaterial as we're ramping up that business.

Speaker Change: Got it and for my follow up.

Speaker Change: You mentioned, having R&D programs, new tack on the way in PD and could there be any integration.

Speaker Change: Closed loop within your portfolio.

Speaker Change: Yes, so one of the things just as a quick quick technology.

Speaker Change: Sort of education here, So high frequency closed loop is not needed. So closed loop technology that Medtronic now announced in one of the private players has out there is basically to ensure that as the.

Speaker Change: The lead is next to the spinal cord of if it moves closer to or further away that you don't get over therapy, and maybe provide a little zap or further away and moves further away where you don't have good enough therapy, that's their way of really turning up the volume up or down based upon where that.

Speaker Change: Where that lead is placed we don't have that problem with high frequency, it's like asking a tesla owner, whereas their gas tank, we don't need one of those on high frequency because we already with doing paresthesia free we don't have to map the patient and as a result of that we've always had great part.

Speaker Change: Of FDA approval, where you can drive the car with our therapy you can go out and have do activities with our therapy, because we don't have any of those jolts or reduction in therapy based upon the lead location.

Speaker Change: Yeah.

Speaker Change: We'll move next to Anthony Petrone at Mizuho group.

Anthony Charles Petrone: Thanks, I appreciate taking.

Anthony Charles Petrone: Several questions here, a little bit just on the competitive dynamics and I have a follow up on gross margin, maybe just a little bit on on average presence there with the terna.

Anthony Charles Petrone: They obviously have a potential synergy there with their libre franchise on the diabetic side, just wondering if they've changed the dynamic on the <unk> side.

Anthony Charles Petrone: With the turn of potentially side by side with Libre.

Anthony Charles Petrone: And then I have a quick follow up on gross margin.

Anthony Charles Petrone: Yes, so we've not seen that out there that could be some potential where they would want to partner, we still standby our clinical.

Anthony Charles Petrone: Superiority that we have and the claims that we have with 10 kilohertz, specifically for PD and patients do you think about it and I've said this before these PD in patients.

Anthony Charles Petrone: From painful diabetic neuropathy already have severe tingling and numbly numbing and their leg. The last thing you want to do is add additional paresthesia to those patients and with high frequency. We don't have paresthesia, that's not our technology provides pain relief and so it's a perfect choice for physicians treating PDL.

Anthony Charles Petrone: Patients.

Anthony Charles Petrone: You can see that we've trained a ton of physicians that have these types of patients in their practice, we have a sales force thats out there educating those referring physicians to pain management offices, and we believe we will continue to have superior outcomes clinically as we've talked about in the earnings script with pausing our sensory study.

Anthony Charles Petrone: We believe we may have a chance to have a powered study to be able to get additional claims in that space and we know that we're the only ones doing that clinical work. So we believe we're still going to stand strong and that PD end market and lead the way.

Anthony Charles Petrone: And just a quick one on gross margin follow up maybe looking beyond <unk> you do have an H FX Iq.

Anthony Charles Petrone: At an ASP uplift.

Anthony Charles Petrone: And Costa Rica is going to be a meaningful contributor going forward. Just as you look ahead beyond <unk> I mean, how do we think about those two dynamics playing out in the second half and maybe even into 2025 gross margin uplift from higher ESP in Costa Rica manufacturing. Thanks.

Speaker Change: Yes, it's a good question.

Speaker Change: There is a couple of factors at play in the way of framing it is.

Speaker Change: Is directionally right one the mix will continue to shift towards IQ.

Speaker Change: As Kevin mentioned, we finished Q1 at about 58% that was up from 53% of our mix being IQ.

Speaker Change: In Q1 53 in Q4, so that mix shift will continue.

Speaker Change: Especially as we've been able to offer a solution to the to the Android.

Speaker Change: Users out there to use.

Speaker Change: Use or use the app with ICU.

Speaker Change: We are picking up a little bit of a pricing premium on that product and we expect to continue to do that for the second half year as I mentioned earlier in the call. Though we are going to have a little bit of pressure on the Cogs side is we have to run some of the variances through through the income statement and through Cogs in the second half of the year.

Speaker Change: Here, but as we get into 2025 and beyond that's when we start to see assuming that pricing holds that.

Anthony Charles Petrone: There is some really strong opportunities to expand margins in 2025 and beyond as the costs are coming in right in line with really how we think that this will play out over time as I mentioned.

Anthony Charles Petrone: Labor costs are solid material costs are.

Anthony Charles Petrone: And the range that we expected so what.

Anthony Charles Petrone: We continue to be really excited about the sort of quality and the op and the.

Anthony Charles Petrone: The scale that Costa Rica's.

Anthony Charles Petrone: Delivering for us.

Anthony Charles Petrone: Yes.

Carolyn Handbag: And we'll move next to Carolyn handbag at Bank of America.

Carolyn Handbag: Hi, Carolyn on for <unk>. Thanks for taking my question I wanted to follow up on the Si joint training disruption in the quarter you mentioned additional training sessions in the second quarter and then continuing throughout the year. So could you put a finer point on the cadence there what do you expect for disruption in the second quarter. When it comes to Si joint training relative to first.

Carolyn Handbag: Quarter, and how does that disruption.

Speaker Change: In the second half compared to first half.

Speaker Change: Then I have one follow up.

Speaker Change: Sure Yes.

Speaker Change: Most of these courses, we do over the weekend, but a lot of times physicians have to travel and on Thursday night, or maybe a friday, depending upon where they're located to come some of our larger trainings. We will eventually shift those out to more of a regional training, but right now our best effort is to be able to bring in a large number to each of these training sessions, so what's baked in already to our.

Speaker Change: Guidance, where I'm going to break out like what percentage. It's just a it's a part of the overall and we know it's the right thing to do as these patients can benefit from having mechanical back pain.

Speaker Change: Relief on top of there.

Speaker Change: Pathic back pain relief that we have for SCS products, and obviously, while they're there, especially for competing positions. We have a chance to talk to them about our SCS therapy. So we're not missing out on a great opportunity to keep driving our superior technology and educating our physicians around it but it does take physicians out of their office for a day or two.

Speaker Change: And no obviously missing trials as a result of that.

Speaker Change: <unk> number, but we just wanted to call it out as we know it had an impact within the within the quarter and likely a little bit in Q2 as well.

Speaker Change: Got it. Thank you and then just putting a finer point on nice source of the disruption between training number of sales reps versus training. The doctors should we think about this disruption is more of a one time impacted your reps get up to speed and then we move past date or is it I.

Speaker Change: I guess protected or is it more.

Speaker Change: Or disruption than you expected previously is it your expectation that you would continue to take doctors out of the clinic for a day or two moving forward to get them up to speed on.

Speaker Change: Thanks again for taking the question.

Speaker Change: Yes, so what we're doing is we're actually training our physicians and they're in there.

Speaker Change: Sales rep at the same time, so we're getting a two for one versus separating those trainings and so we're able to have the physician in their sales rep stand side by side and making sure that theyre training appropriately. So when they go back together to the practice. They can they can form that procedure just like they did on a model or cadavers and so.

Speaker Change: We are getting sort of a two for one as we do these training sessions and most of our sales reps right now we're working through getting at least one person in each territory, where they're sort of certified as we call. It to make sure that they can cover cases appropriately and we're well on our way to do that so it's really a bolus of training right now.

Speaker Change: Now, where we have a lot of our net Roe.

Speaker Change: Implanting physicians that wanted to be first in line to really train for ESI joined and we made sure that they were sort of front of the line there and our sales reps that cover those territories, where sort of the first IND for training, we believe that by the end of Q2 and throughout Q3, a bit we'll get the majority of our sales reps up to.

Speaker Change: Speed, where at least one person in that territory can help cover those cases.

Speaker Change: Thank you.

Speaker Change: We'll go next to Justin Lin at William Blair.

Justin Lin: Hey, good afternoon, guys. Thanks for taking my questions first one on.

Justin Lin: Hff's IQ, what's the timing in terms of getting it available in Android and what you've talked about and are there any other levers that you can kind of pull to accelerate that growth.

Justin Lin: On top of that dynamic.

Speaker Change: Yes, so we just launched.

Justin Lin: The opportunity for patients that had Android it's not on their device. It's a lock to iPhone that they are able to utilize for the for the treatment and that way it stays consistent across all of our customer base as a reminder.

Justin Lin: We are the only company that has AI inside of our technology with our algorithm because of the 100000 plus patients that are in our database and we want to make sure that that data that we get from all of our patients we keep learning and our algorithm keeps adapting based upon how patients are receiving their treatment and.

Justin Lin: That treatments personalized for them. So we just launched that within the quarter and that's being rolled out across the U S right now.

Speaker Change: Got you second follow up question, just on PD and I know you are no longer kind of bifurcated out the PD business, but any qualitative color you can give there how's the business trending relative to your expectations.

Justin Lin: Yes. It came in right in line with our expectations is still strong.

Justin Lin: Have a ton of interest in it and again we are still.

Justin Lin: <unk>, 1% penetrated in that market and so we're out there educating everyday on the benefits of the therapy and ensuring those referral networks are setup. So it will continue to still be a strong part of our business moving forward, but it came in right in line with our expectations and it was still strong.

Speaker Change: Got it helpful. Thank you.

Justin Lin: And next we'll go to Brad Bowers at Mizuho Securities.

Bradley Thomas Bowers: Hey, Thanks for fitting me in just wanted to follow up on one from Mizuho and on behalf of Anthony just wanted to go back to the various strategy. It sounds like a lot of the work being done right now is on existing net broke physicians and getting them trained.

Bradley Thomas Bowers: It sounds like the longer term or medium to longer term strategies for <unk> to be used as kind of a door opening tool.

Bradley Thomas Bowers: To get into practices, where net road maybe isn't the majority.

Bradley Thomas Bowers: Choice for SCS. So just wanted to hear when do you think you'll be able to kind of switch to salesforce to focus on new accounts and leading with various ASI and tried to take some market share back in the pain practices is that something that.

Bradley Thomas Bowers: It will be maybe a help for numbers this year or is that something that maybe we should consider more of a next year item. Thank you.

Speaker Change: Yes for sure I mean, a lot of our sales reps have already taken advantage of the opportunity to have conversations with physicians that maybe had told them no over a period of time and now they have something new to talk about so we're excited about getting those physicians in the Q4 for training obviously the results we're talking about today, where a lot.

Bradley Thomas Bowers: Towards Q1, but as we're already into Q2.

Bradley Thomas Bowers: The mix shift to physicians attending our trainings, including all comers. So narrow physicians that have put ses and narrow devices in for a decade and some that are in planters of other devices for Ses and also learning.

Bradley Thomas Bowers: The <unk> device. So we will do we will do a lot of both.

Speaker Change: Thank you.

Speaker Change: Yes. Thank you.

Speaker Change: And that does conclude our Q&A session and today's conference call. We thank you for your participation you may now disconnect.

Speaker Change: Goodbye.

Speaker Change: Please wait the conference will begin shortly.

Speaker Change: Okay.